“It will be an ill day for this country when we raise the cry that success honestly won is to be punished; that money honestly gained is the badge of criminality; and that we are to go to the people of the United States in the search for popularity, and say to them: ‘Follow us. We will plunder the people who have got the money. You shall spend it, and it will not cost you anything.’ That is a dangerous cry to raise in any country, for when you unchain that force you cannot tell where it will stop, and in your eagerness to destroy property and rob men of hope and ambition you may bring your boasted civilization down in ruins about you.”
— Massachusetts Senator Henry Cabot Lodge
CHARLOTTE — In their May newsletter, the North Carolina Budget and Tax Center urged the General Assembly in Raleigh not end the ‘surtax’ on higher incomes scheduled to expire next fiscal year. Looks as if the legislators were listening. Though North Carolina “temporarily” raised both sales and income taxes in 2001, the tax-and-spenders in Raleigh still signed off on a 2004-05 budget that adds a billion dollars in new spending — new spending that cannot be financed over time without more taxes. This is no doubt what liberals on The Charlotte Observer editorial board call ‘fiscal conservatism.’
The Budget & Tax Center — a project of the left-wing NC Justice & Community Development Center — believes in equalizing incomes through the tax code. But their penchant for redistributing wealth is based on a false premise: that income inequality is bad. In a growing economy, the rich do get richer, but so do the poor and middle class, as rising median income figures attest. Some folks, however, strike it rich beyond their wildest American dreams. This unlimited growth potential at the top tends to widen income differences even as the poor and middle class gain wealth. Conversely, during economic downturns, the so-called wage gap lessens, in part because salary reductions have a floor of zero further compressing income between households. This would be preferable to the statists?
So while South Carolina Gov. Mark Sanford battles to lower his state’s top income tax rate from 7 percent to 4.75 percent, Carolinians to the North remain stuck with a top income tax rate of 8.25 percent, the eighth highest in the nation. This is especially hard on the engine of economic growth in the Tar Heel state: small business. In fact, the non-partisan Tax Foundation just reported that nationally “most of the people in the top one percent of earners are business owners and entrepreneurs, not just high-income individuals with trivial business income on the side.” According to earnings declared on tax returns on Schedule C, E, and F of the 1040, “business income could amount to as much as 65 percent of all the income earned by the top one percent of earners.”
Of course, tax-hike advocates claim that letting the well-to-do keep more of their own money further shifts the tax burden on to the “have nots” whose effective total (including sales) tax rate is already higher as a percent of their income. It’s more than interesting to note that a couple filing jointly in NC making just $21,251 already gets pushed into the 7 percent income-tax bracket, still higher than the top rate in most Southern states. Are those families the “haves” that the class warriors indict for the crime of having too much?
It should be self-evident to most folks that the rich have more after-tax income than the poor. After all, they also have more after-grocery income. That’s why we call them wealthy. If we are really to believe that some taxes and fees are regressive because they may take a larger portion of income, then are we to price groceries based upon that old collectivist notion of “ability to pay?” Think of it: one price for the downtrodden, one for the middle class, and one for the well off — all for the same loaf of bread. Don’t laugh, that’s precisely the way we assess the state and federal income tax.
The purpose of taxation is not to make certain everybody pays his or her ‘fair’ share, whatever that is. No, the purpose of a just system of taxation is to raise revenue for authentic public goods (those that benefit all) in a neutral (or “uniform” as the framers defined it) manner so that people bear the burden for the government they consume. The problem for North Carolina’s liberal elite is by that standard, the rich have been overtaxed since the advent of the income tax itself — of which state coffers have become over reliant in recent years.
Indeed, according to new income-tax incidence data from the North Carolina Department of Revenue, the real tax burden as a percent of taxes paid falls clearly on the higher income earners. The latest figures (for the 2002 tax year) show the 20 percent of taxpayers with the highest AGI pay a whopping 66.31 percent of NC individual income taxes while the quintile of earners pay just .77 percent. That’s right, less than 1 percent.
AGI Quintile / % of Returns / % of Total Tax Liability
1 ($63,251 and above) 20% 66.31%
2 ($35,801 to $63,250) 20% 19.58%
3 ($21,351 to $35,800) 20% 9.69%
4 ($10,801 to $21,350) 20% 3.66%
5 ($10,800 and below) 20% 0.77%
Source: NCDOR, Tax Research Division
No one’s suggesting that taxes on the poor be raised, but considering that earnings of just $63,251 get you into the elite quintile of taxpayers, it’s hard to see why anyone wouldn’t be arguing for immediate tax relief for the rest of North Carolina’s overburdened taxpayers. Then again, if the aim is to redistribute wealth by turning the tax code into just another welfare program, it’s not too hard to see why a few remain so wedded to such a faux populism.
Capitalism is not some sort of Hobbesian straw man that so many activist critics claim it to be. It is in fact roughly the opposite of such dog-eat-dog Darwinism. A market-driven system is predicated on the rule of law, and most importantly, the protection of private property. That last is what government is charged with upholding, not violating – least of all in the name of equity.
Jason Lewis hosts a weekday talk show from 3 to 6PM on NewsTalk 1110 WBT. He can be reached at [email protected].